Advice can be ignored. One of my favorite advisors once told the founders of YouTube that, “People don’t want to watch video on their computers.”

Advice is useful if it helps you perceive and evaluate the outcomes of today’s actions. That’s what it means to be wise. But advisors can’t be wise for you, especially since they don’t know your values, goals, and environment.

Understanding advice isn’t as useful as understanding why you’re supposed to be following it.

Advice tells you how to play the game. But there’s more than one way to play the game in chess, football, business, and life.

Advice distills the experiences of the past. But what worked yesterday will not work tomorrow. Today is not for copying the past. Today is for testing hypotheses whose outcome is unknown.

Advice asks for mimicry: “This works for me so you should do the same thing I do.” But the essence of strategy is to perform different activities than your rivals do. Strategy requires differentiation—not mimicry.

Once you’ve gathered advice, take the course that you think is best—you’re the only one who will be faced with the consequences.

Lawyers teach you the rules of the game. But they usually can’t teach you how to play it.

Lawyers say whether you can do something, within the confines of the law and your existing contracts. Lawyers will also write the contracts and do the filings. But they usually can’t tell you what to do—that’s what coaches do.

Here’s a classic startup mistake that illuminates the difference between a coach and a referee:

You’re negotiating an investment and you’ve agreed to a board with 2 investors, 2 common, and 1 independent.

You’re almost ready to sign the term sheet when your prospective investors say, “Sorry, we forgot, one of the common board seats needs to be the CEO.”

You’re thinking, “I’m the CEO and I was going to elect myself to the board anyway, so that’s fine.” Your lawyer agrees and says, “That’s standard.”

A lawyer knows that you’re not breaking any laws or contracts if you give a common board seat to a new CEO. He also knows how to write the contract. But an advisor knows the possible outcomes of that decision.

Third, startups without advisors often assume their lawyers have good business advice. That’s a mistake. You need a coach, not a referee, to teach you how to play the game. And most referees aren’t good coaches (but some are).

Fourth, not every coach is a Phil Jackson. Not every coach has won 9 NBA titles as a coach. The effectiveness of coaches in the NBA varies widely. Why would the effectiveness of advisors be any different? Is your advisor a Phil Jackson?

Fifth, there’s more than one way to play the game. Phil Jackson doesn’t have a monopoly on coaching. And neither do we. Go find a coach who can teach you how to play the game. There’s only one Phil Jackson in the NBA because basketball is a zero-sum game. Fortunately, there’s more than one great startup advisor in the world—life is not a zero-sum game.

“Mr. Munger’s magnum opus speech, included in the book, is The Psychology of Human Misjudgment — an exposition of 25 key forms of human behavior that lead to misjudgment and error, derived from Mr. Munger’s 60 years of business experience. Think of it as a practitioner’s summary of human psychology and behavioral economics as observed in the real world.

“In this series of blog posts, I will walk through all 25 of the biases Mr. Munger identifies, and then adapt them for the modern entrepreneur. In each case I will start with relevant excerpts of Mr. Munger’s speech, and then after that add my own thoughts.”

I started making a cheat sheet of Marc and Charlie’s key points—I thought I would share it with you. It’s a handy reference once you’ve read the full article.

1. Reward and Punishment Super-Response

Once you realize how much incentives influence human behaviour, you need to assume their influence is even bigger than you think. Never think about something else when you should be thinking about incentives.

“If you would persuade, appeal to interest and not to reason.”

– Benjamin Franklin

Incentives are so powerful that every incentive should have a counter-incentive to restrict gaming of the first incentive.

2. Liking and Loving

Liking and loving something conditions you to (1) ignore faults of and comply with wishes of the loved, (2) favor people, products, and actions associated with the loved, and (3) distort other facts to facilitate love.

Wanting to be liked by your teammates impedes you from firing people and making unpopular but good decisions.

3. Disliking and Hating

Disliking or hating something conditions you to (1) ignore virtues in the disliked, (2) dislike people, products, and actions associated with the disliked, and (3) distort other facts to facilitate hatred.

4. Doubt Avoidance

“A good plan, violently executed now, is better than a perfect plan next week.”

— George Patton

Believing that something will happen, and convincing others that it will be so, makes it more likely to happen.

While a hypothesis is still doubted, wise entrepreneurs know whether (1) persistence and iteration will prove the hypothesis, or (2) the hypothesis will not be proven and additional testing is a destructive waste of time—a new hypothesis is required.

5. Inconsistency Avoidance

Your existing ideas may be unknown to you. They may be hidden assumptions. We often make hidden assumptions about unknown unknowns.

If existing customers in the market aren’t ready for a product that is inconsistent with their behaviour, go after customers who aren’t in the market because they can’t afford the existing product or don’t have access to it. See The Innovator’s Dilemma and The Innovator’s Solution.

6. Curiosity

Insufficient curiousity prevents you from learning. Hire curious people and discover your customer’s true needs—not what you think they need.

General

1. What do advisors do?

They provide advice, introductions, investment, and social proof. Any combination of these is useful, except for an advisor who just provides social proof—savvy folks don’t take those advisors seriously.

2. Should I put together a board of advisors?

A “board” of advisors is not a formal legal entity like a board of directors, which is defined in the Constitution and shit. You don’t need a board to collect advisors.

Create a board if it makes you and your advisors happy. Perhaps some advisors feel fancy if they’re on a board. But it really doesn’t mean anything.

3. How do I get good advice?

Ask questions. I usually ask questions about my immediate goals for the next day and week. This sounds obvious but most people simply don’t know how to get good advice and apply it.

Some entrepreneurs set up quarterly advisory board meetings and that probably works well for them. But we find savvy entrepreneurs tend to be transactional—they ping their advisors as needed and skip the advisory board meetings.

4. How do I apply advice?

Your advisor isn’t you: he doesn’t have your goals, history, or strengths and weaknesses. He doesn’t know your company like you do. So take the advice and apply it to your specific situation. This is the advisor paradox: hire advisors for good advice but don’t follow it, apply it.

Even good advisors may guide you with conventional wisdom. And startups are about applying unconventional wisdom. Your task is to hire the maverick advisors in the crowd.

5. How do I find advisors?

From your network and cold calls. There is no magic solution. Hiring advisors is an ongoing effort. Start now and continue until you’re dead.

If you’re working on something interesting, smart people will offer to help you. The contrapositive is also true: if smart people don’t offer to help you, you’re probably not working on something interesting.

Personally, I’m always asking people for advice. I try to turn the folks that give great answers into advisors.

6. How can I tell if an advisor is any good?

Try before you buy. Most advice is awful. Including advice from successful entrepreneurs. (Successful people probably have an intrinsic lead on making introductions though—they tend to have better networks.)

If you’re considering a prospective advisor, (i) talk to his other advisees and find out exactly what he’s done for them, and (ii) get some advice or introductions first. Then hire him if you like the results. No worthwhile advisor will resist this test.

You can gauge the quality of advice by asking questions (see above). Does the prospective advisor give you the best answers you have ever heard? Could he teach a course at Harvard on the topic? Would you invest in him? If no, move on. If yes, engage him and squeeze his brain dry.

Summary: Here are 2 more microhacks for finding a lead investor: (4) Incent followers to lead by telling them the truth: there probably won’t be room in the round for followers. (5) The best way to find a lead is to build something that attracts a lead: keep building your company and reducing risk.

In parts 1 and 2, we presented three microhacks for finding a lead investor. Here are two more microhacks, in continuing order of importance.

4. Incent a follower to lead.

Whenever someone says “find a lead”, you should say,

“We’re happy you’re interested. We’re interested in working with you too.

“We’re looking for a lead and a lead is going to want the entire round. Or he will bring in his own co-investors. Or we’ll build a syndicate out of investors who want to lead. So we may be back but we probably won’t.

“Most likely, the investors who get to participate in this round are those who want to lead. If you’re interested, you can secure a spot in the round by leading and we’ll work with you to set the terms and decide who gets to invest.”

This polite diatribe combines positive leverage (“you can secure a spot in the round by leading and we’ll work with you to set the terms and decide who gets to invest”) and negative leverage (“the only people who get to participate in this round are those who want to lead”, i.e. you may lose the option to invest if you don’t act now.) Their reaction to this message will tell you whether they have good reasons to follow or they just don’t want to say no.

If you have existing seed investors, you can also use them as the bad cop:

“We really like you but my existing investors are pushing me to find a lead and not spend time building a syndicate. Are you willing to lead the round?”

5. Get past no.

Your company may not be good enough to raise money. So how do you get good enough? Read Marc Andreessen’s When the VCs say “no”:

“If you’re an investor, you look at the risk around an investment as if it’s an onion. Just like you peel an onion and remove each layer in turn, risk in a startup investment comes in layers that get peeled away—reduced—one by one.

Your challenge as an entrepreneur trying to raise venture capital is to keep peeling layers of risk off of your particular onion until the VCs say “yes”—until the risk in your startup is reduced to the point where investing in your startup doesn’t look terrifying and merely looks risky.”

Marc’s goes on to describe the various layers of risk and, even better, he tells you how to peel the layers away. This is the most useful article on improving the effectiveness of startups that we have ever seen—read it.

Founder risk is the number one reason startups don’t get funded: the team simply does not appear up to the task. If you have a good product in a good market and you can’t figure out why you keep getting rejected, look in the mirror and remove/add people until the team inspires money to fly out of investor’s pockets.

This is the fifth microhack but it should really be the first, second, third, fourth, and fifth. The best way to find a lead is to build something that attracts a lead.

“No one ever got anywhere by lavishing calls on Oprah. The only time I’ve succeeded in my career with Oprah was [when] Oprah called us.”